Financial advisors who market retirement plans to employers have watched in recent years as the expanding list of states that have mandated automatic enrollment payroll deduction individual retirement accounts—auto-IRAs for short—could alter the retirement savings business. These plans could also cut deep into their business and potentially shake up the market for private plans at their own expense.
In fact, the reverse seems to be happening. Statewide savings programs designed to increase retirement savings for those without access to an employer-sponsored plan seem to be encouraging businesses to sponsor their own plans, new research by the Pew Institute found.
In states that have created their own payroll deduction auto enrollment IRAs, employers with plans continue to offer them and businesses without plans are still adopting new ones at similar or higher rates than before the state options were available, Pew found. Their research used preliminary data from annual filings to the U.S. Department of Labor by employer-sponsored plans.
“As I always thought, auto-IRAs would create an opportunity for advisors to go into employers and say, ‘I can give you a better plan, tailored to your needs, that is going to be really good for your employees and for you as business owner,’” State Street Global Advisors Managing Director of Retirement Policy Melissa Kahn told Financial Advisor magazine. “This has been very good for advisors.”
The Pew findings are timely, as more states consider adding auto-enrollment IRA mandates for employers and, on the national level, House Ways and Means Committee Chairman Richard Neal (D-MA) contemplates adding a federal auto IRA mandate to SECURE 2.0 or future legislation.
Eight states so far—including California, Illinois and Oregon—have implemented auto-IRA programs, which require most employers with 10 or more employees and no retirement plan to automatically enroll workers in the state plan. Maine and New York just passed statutes to create auto-enrollment IRA plans.
Workers are 15 times more likely to save for retirement if they can do so through their job, Pew research shows. And that’s a good thing considering some 57 million Americans do not have access to a retirement plan at work.
As a result of the 8 state plans, more than 20 million of the 57 million workers who have lacked access to a retirement plan now have the opportunity to save, according to Georgetown University’s Center for Retirement Initiatives.
The plan industry, analysts and advisors, however, have all worried what fallout would be for employers and the retirement plan market. Would state programs kill the private market for plans by taking away businesses’ desire or ninterest in adopting their own 401(k)s or comparable plans? Would some employers even decide they no longer needed the retirement plans they have? Or, alternatively, could these programs spur on new plan growth?
The rollout of state mandates actually seemed to catch employers’ attentionand turn them toward their own benefit plans. Among small and midsize employers without plans, 51% said that they would start their own plan rather than enroll workers in the state-sponsored program, Pew found.